Early Retirement Pluses and Minuses

Offers of early retirement appear to be much sought after, if my correspondence is any indicator. Not only do I get frequent requests for updates on particular agencies or sub-activities but I also get desperate e-mails like this one: "Will the government be offering early outs anywhere this year?" While I can’t answer questions about particular agencies or activities until I learn about them the same way you do, I can say categorically that some agencies will be making early retirement offers this year. What I don’t know is which ones, where they’ll be located, and who will receive the offers.

However, because it’s a given that early retirement offers will be made to some employees, you need to be prepared to make an intelligent decision if one comes your way. The advantages of early retirement are obvious. You no longer have to go to work but you still receive a check, only this time it’s called an annuity. Further, you are free to do what you want with your newly acquired free time, including everything from sitting around, playing golf, doing volunteer work, traveling, turning your hobby into a business or getting a new job.

The disadvantages are equally obvious. You are no longer receiving an income that is even close to what you got when you were working, which may require some – or a great deal – of belt tightening. And time may hang heavy on your hands. If you are married, there will be an effect not only on the family finances but also in many other aspects of your lives.

Early retirements are offered to employees who meet the eligibility criteria: at least 55 years old with 20 years of service or any age with at least 25. However, it’s income that usually determines whether you are able to retire.

The financial effects of early retirement can be summed up as follows. The fewer years of service you have, the smaller your annuity will be. For example, if you are a CSRS employee who retires with 30 years of service, you will have an annuity that equals 56.25 percent of your high-3. For every year less than that, deduct 2 percent. Further, if you are under age 55 when you retire, your annuity will be permanently reduced by 2 percent for every year you are under 55.

If you are a FERS employee who retires with 30 years of service, your annuity will be 30 percent of your high-3. Deduct 1 percent for every year less than that. Fortunately, there won’t be any age penalty for retiring early. On the other hand, you won’t be eligible for the special retirement supplement until you reach you minimum retirement age, which ranges between 55 and 57, depending on your year of birth. The special retirement supplement approximates the Social Security benefit you earned while reemployed under FERS.

And one more thing. While CSRS employees begin receiving annual cost-of-living adjustments to their annuities regardless of the age at which they retire, FERS employees usually don’t get them until they reach age 62.